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Holdredge v. Webb

64 Barb. 9 Court N.Y. Sup. Ct. Decision date 1872-11-04 English

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Mary D. Holdredge vs. William H. Webb.

Headnote

In an action to recover the price of stock in a gas company, sold by the plaintiff to the defendant, the answer alleged that at the time of the sale the plaintiff’s agent represented that the company named had been incorporated, and owned the right to manufacture gas in the city of New York; that they had a new invention for manufacturing gas, and had a patent therefor; that the company had obtained a grant which gave it the right to lay pipes in the streets of said city; and it was alleged that such representations were false. Held that whether or not the charter obtained for the company authorized it to sell gas, and whether or not the resolution passed by the common council, authorized the company to lay pipes in the streets of New York, to distribute the gas, were not questions of fact on which fraud in making the contract for the sale of the stock could be predicated.
Held, also, that there being an incorporation of a company, under the Manufacturing Act, as stated in the certificate of stock delivered at the time of the sale; and there having been a resolution passed by the common council, giving to the company the right to lay pipes and mains in the streets of New York, so far as there was a representation of fact, it was true
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That whether, under such incorporation, the company could sell gas; and whether such resolution of the common council was valid to confer the powers which it professed to confer; were questions of law, and that an opinion stated on either of these points would be nothing but an opinion on a question of law, the formation of which was just as much within the power of the purchaser as of the seller; and that an error on the part of the vendor, in stating such an opinion, would not be a false statement of a fact, on which the purchaser could rely to vacate the contract.
It was represented, at the time of the sale of the stock, that one million of dollars of the capital stock of the company had been paid up; which representation was claimed to he false. The referee found that one million of stock was issued in payment for the patent rights and the city grant. Held that such issue being authorized by the act under which the company was incorporated, the representation was not false.
Held, also, that a representation that the remainder of the capital stock, ($2,000,000,) was to be subscribed, and that the company had full confidence that such subscriptions would be obtained, was not the statement of any fact then existing, but a mere opinion of what would be; and if erroneous, formed no defence to an action to recover the price of the stock.
That the subsequent failure of the company to carry out their project, the failure to erect gas-works, and the abandonment of the project by the directors, in no way affected the contract previously made between the parties for the sale of the stock; that risk being assumed by the purchaser when he made his investment in the stock; and the vendor in no way guaranteeing the final success of the undertaking.
Both buyer and seller of stock are bound to inquire as to the validity of a grant to the corporation; and a mistake by either, being a mistake of law and not of fact, will not affect the contract.
APPEÁL by the plaintiff from a judgment entered upon the report of a referee, dismissing the oomplaint.
The action was brought to recover the balance of the price of 500 shares of the stock of the Anthracite Gras Lighting and Heating Company of Hew York, sold and delivered to the defendant on April 14, 1864, at seventy-five dollars per share. The defendant had paid ten per cent of the price in cash, and had promised to pay the remainder in six months from the sale. The amended answer was, in substance, as follows: 1. A general denial. 2. An averment that the plaintiff was not the real party in interest. 3. That Henry Holdredge, the hus
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band of the plaintiff, represented to the defendant that the gas company had been duly incorporated, &c. That the company had obtained a grant which gave to it the right to lay down pipes in every lane, street and square in the city of New York. That the company was the sole and exclusive owner of a new invention and patent for the manufacture of gas, and that it was of immense value. That the use of steam and anthracite coal in making gas was new, and an important improvement; and that the gas was superior, and the cost forty to fifty per cent less than by the common methods. That the new method had been adopted at White Plains. That it had been tested on an ample scale, for two years, at Elizabeth, where the method was in operation, and used for lighting the city, and that arrangements had been perfected at Elizabeth for adapting the entire works to this use, &c. That one million dollars of the stock was legally paid up stock, and that the balance would be subscribed for, and paid for, in a very short time. There was also an averment that the representations were false; and the defendant in his answer offered to re-transfer the stock. 4. An averment that the promise to pay the balance for the stock was without consideration, for the reason that the stock was valueless. Not one dollar had been paid to the company for capital stock. The only assets of the company were the patent and the alleged grant to lay pipes. That the invention was not novel, but well known, and that other patents had been issued. That the grant to lay pipes was invalid, because the common council of New York had no power to make it, but that such power was in the legislature. And the defendant further submitted, that the company was not legally incorporated, as it was not incorporated under the act which allows the incorporation of gas companies, but under the general manufacturing act, and that the company had, therefore, no power to issue the certificate of stock which was issued to the defendant; and that
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the issue of the one million of stock was illegal for want of power to issue it. And the answer claimed that such issue was illegal, also, because the patent for which it was issued was not worth $1,000,000 nor one cent. That if there was any consideration at the time, it subsequently utterly failed; the stock was never taken; the new method turned out to be of no practical value; the company was dissolved by reason of the failure of the company to comply with the statute, which required the stock to be paid in within one and two years; and that the scheme for making gas had been abandoned by the company, and its organization dissolved.
The issues were referred to Luther R. Marsh, Esq., for trial.
The only witness called, upon the trial, was Henry Holdredge, the husband of the plaintiff. He proved the contract of sale, as stated in the complaint. On his cross-examination he proved, among other things, that the company owned several patents for improvements in the manufacture of illuminating and heating gas. That the company was formed in May, 1863, with a capital of $3,000,000, one million of which was given for the patents; and the rest remained for subscription. That the transfer to the defendant, of the stock in question, was made April 14, 1864. That the books for subscription were opeii'ed on April 16,1864, by Jerome & Riggs, when some stock was subscribed for, but the subscription failed, probably because of a panic in the money market. That stock of the company to considerable amounts was sold, before the books were opened, to several parties. That in May, 1865, this company was merged in a new company. This company was organized by a certificate duly exe-' cuted. The company had obtained from the common council authority to lay their pipes in the streets, squares, &c., of the city. This right was very valuable. Holdredge told the defendant that the introduction of anthracite coal in the manufacture of gas had .been greatly
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improved. That they had the patents therefor. That the process was greatly superior to that in common use. That a given quantity of gas could be manufactured, of a better quality, at a cost of fifty per cent less than by the common methods. And in his evidence he swears, not only that he said this, and believed it, but that it was all true. On re-direct the witness said, that he told the defendant that they had a grant from the common council to lay pipes, not that they had the right to lay pipes. The report of the referee was simply that the complaint should be dismissed. But in settling the case, he made certain findings of fact, as authorized by rule 41, viz: 1. That William H. Grwynne, prior to May, 1863, obtained three patents for processes for manufacturing gas. That Henry Holdredge, the husband of the plaintiff, advanced various sums of money of the plaintiff to Grwynne to aid in developing said patents, and Grwynne assigned to him an interest in said patents, which they held for the benefit of a company to be formed. 2. That in May, 1863, the company in question was formed, and the. certificate is set out. 3. That soon after, certain certificates of stock were issued to Grwynne and Holdredge, who assigned the patents to the company. That Holdredge was insolvent, and acted in the matter for his wife, the plaintiff. 4. When said stock was issued to Holdredge and Grwynne, no cash capital had been paid in; the capital consisted of $3', 000,000, one million of which was issued for the patent rights and city grant, and the balance of $2,000,000 remained for future subscription. 5. That about the 3d of August, 1863, an ordinance was passed by the common council of the city of Hew York, as follows:
Resolved, that there be, and hereby is, granted to the Anthracite Gras Lighting and Heating Company of Hew York the right to lay pipes and mains for conducting gas, for illuminating and heating, and other purposes, through the streets, avenues, lanes, alleys, squares, and
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other public places in the city of Hew York for a period of fifty years, as provided by the general manufacturing laws of the State of Hew York; the said conductors to be laid under the supervision of the street commissioners, the said company being required to restore the streets opened by them for laying such pipes to the same condition as before the said pipes and mains were laid.
This resolution was afterwards amended by adding, after the words “Hew York,” in the second line, the words “and their assigns.” 6. That about April 14, 1864, Holdredge, acting for his wife, though not disclosing his principal, offered to sell to the defendant 500 shares of the stock, and represented that arrangements were made for a subscription of $9,000,000 of capital stock, and that they had full confidence that such subscriptions would be obtained; that books for subscription were to be opened in a few days, at the office of Jerome, Riggs & Co. That Holdredge represented that the company had a grant from the corporation of Hew York of a right to lay pipes in every street and square of the city, and that it was immensely valuable, and both he and the defendant believed the same; that Webb, believing said representations, and relying thereon, agreed to take 500 shares at $75 a share. That soon after, Holdredge left with the defendant a certificate, which is set out, and the defendant paid to Holdredge the sum of $3,500 on account. 7. That afterwards, books for subscription of $9,000,000 of stock were opened at the office of Jeróme, Riggs & Co., but the stock was not subscribed. That some subscriptions were made, and about $8,000 was paid on account thereof, but this was afterwards returned, and no other subscriptions were ever afterwards made; no capital was realized by the company, and the project for raising the capital required was, for the time, abandoned; no gas-works were ever erected, no gas-pipes were ever laid, and no gas was ever manufactured by the company. 8. That about May, 1865, the patents
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and aEeged charter privEege were assigned by the company to a company caEed the Citizens’ Mutual Gas Company, for which said latter company issued them entire capital, to wit, certificates for $5,000,000 of stock. 9. That this suit was commenced in 1866. 10. That at the time of the bargain for the purchase and sale of the 500 shares in question, a mutual mistake of fact on the part of buyer and seEer was made, to wit, both believed that the company had the right to lay gas-pipes in the streets and squares of Mew York city, and both beEeved such right of great value, when in reality, said company had no such right; and the referee found that said fact was material to the contract made, and that the defendant would not have made said contract but for such mistake of fact. 11. That there was an entire faEure of consideration for the promise of the defendant to pay for the stock claimed to have been sold, and the said certificate was, at the time it was received, thereafter, utterly worthless.
The referee then added certain findings of law:
First. That the making and filing of the certificate of incorporation was under the act authorizing the formation of corporations for mining, mechanical and chemical purposes, passed the 17th day of February, 1848; and that by vEtue of the said certificate the said company obtained none of the powers or privEeges granted by the act entitled “An act to authorize the formation of gas companies,” passed the 16th day of February, 1848.
Second. That the ordinance of the common councE, proved before the referee, did not convey to the company the right to lay any pipes in any street or square of the city of Mew York.
Third. That the contract for the purchase of the stock having been made under a mistake of fact as to the right of the company to lay pipes in the streets and squares of Mew York, the defendant had a right to have the contract rescinded.
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Fourth. That the consideration, for the contract failed, and the plaintiff had no right to enforce the same.
Lastly: That the plaintiff had failed to prove any cause of action, and the complaint should be dismissed.
Aug. F. Smith, for the appellant.
I. The resolution of the common council did give to the gas company the right to lay their pipes in the streets of New York. 1. The fee of the streets of New York is in the city. (See the Montgomery Charter, citing the Dongan Charter in “ City Charter and Kent's Notes," p. 6. 2 R. L. 414, § 178. The People v. Kerr, 27 N. Y. 196 ,197.) 2. The city holds the streets in trust for public usé, and the owners of the lots upon the streets have no interest in the streets entitled to protection under the constitution, as private property. (The People v. Kerr, 27 N. Y. 188 .) This being so, it is not necessary to consider further the question of the validity of the resolution, as affected by the rights of individuals, nor is it necessary to regard all that large class of cases which depend upon the fact that the fee of the street or road still remained in the owner of the contiguous land, while the public had only a right of way. 3. It may be conceded that the resolution in question did not give to the company an irrevocable right for the time mentioned in it, but it was nevertheless good as a license, and good until revoked. The city owned the fee of the land in which the pipes, were to be laid, and is daily in the habit of granting similar privileges; as, for example, licenses to build vaults under the streets for the use of stores, to extend stoops and areas in the avenues and broad streets, and permits to obstruct the street with building materials. The right of the city in these particulars is undoubted, and so long as the city does not part with the control of the subject, no valid objection can be alleged against the grant of the privilege. (See The People v. Kerr, per Emott, J., 27 N. Y. 202 -204.) The
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most that the cases have decided is, that the city of New York cannot, grant a right to construct a railroad in a street, which railroad is placed beyond the control of the city, and that the city cannot part with the control of the streets, which it holds for the use of the public. (Davis v. The Mayor, 14 N. Y. 506 . Milhau v. Sharp, 27 id. 611, 618, 619, 622 .) After these cases, it was deemed necessary to pass a statute. (Laws of 1860, p. 16.) 4. Upon authority, every instrument which assumes to give more than the donor has the right to give, is good to to the extent of the donor’s right to give. This principle is applicable to the grant in Question of the right to lay the pipes. The city had the right to grant the license, but not for a fixed time. The grant was void in respect to time, but good as a license, and until revoked. (See Darling v. Rogers, 22 Wend. 483 .) In this case, Cowen, J., says: "The principle upon which judges are called upon to act in regard to all contracts and assurances is ut res magis valeat quam per eat.” (Id. 488.) And again: “That the maxim is applicable to every sort of writing by which legal rights are created or transferred,” &c. (Id. 488, 489.) And Sheppard (Touchstone, 490,) says: “ Let it receive as much effect as may be to that end for which it was made.” (See also Curtis v. Leavitt, 15 N. Y. 96 , per Comstock, J.; Oxley v. Lane, 35 id. 340, 349 ; Kane v. Gott, 24 Wend. 641 , 666.) 5. Apart from these more general considerations, the amended charter of 1857, which provided a department to have cognizance of lighting the streets, &c., with a “bureau of lamps and gas,” must be held to give to the city a right to authorize the laying of gas pipes in the streets. (Laws of 1857, ch. 446, p. 880, § 23.)
II. Probably for practical purposes a revocable grant was as good as one for a fixed period; but whether it was or not, is not material upon this appeal, for the plaintiff was nonsuited upon the ground of a total fail-Vol.
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ure of consideration. Certainly the nonsuit cannot be sustained when it appears that the company held the patents under which gas could be made at such advantage in quality, quantity and in cost, and held also a valid grant of a right to lay pipes in the streets.
III. The company in question had complied with the requirements of the act providing for the incorporation of gas companies, passed February 16, 1848, which requirements were precisely the same as those of the general manufacturing act, passed the next day, February 17, 1848, and the plaintiff claims that' this gave the company all the privileges secured by the first named act. (See Laws of 1848, pp. 48, 54.) One of these privileges was that of laying pipes in the streets. (Id. p. 51, § 18.) There is nothing in either act that requires the corporators to indicate under which law they propose to act. When the certificate is signed and filed, the corporation is born, and thenceforward lives under such law or laws as are "applicable to it. The claim in the certificate to be incorporated under one law or the other, does not give a right under one or the other. The right under one or the other is fixed by the law, and depends upon the question whether the corporators have complied with the law. The claim in the certificate that the incorporation was under the manufacturing law, was of no force—was mere surplusage.
IY. The company, having complied with the requirements of both the acts, they stand, for their rights and .privileges, upon both acts, on the well established rule for the construction and application of statutes, that acts in pari materia (upon the same subject) are to be construed as if they formed parts of the same act. ( W. and W. Turnpike co. v. The People, 9 Barb. 161 , 169. Smith’s Com. 751, § 639. 1 Kent’s Com. 463, 464. 1 Doug. 30 . Rexford v. Knight, 15 Barb. 627 .)
Y. If, however, it were to be conceded that the company had no right to lay pipes, but that they must de
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pend upon an act of the legislature to confirm the grant of the corporation of the city on that subject, still no case was presented for a nonsuit. 1. The thing sold was the stock of the company, not the mere right to lay pipes. The stock depended for its value upon several things. Upon the value of the patents, as well as upon the grant from the city. And it cannot be said that there was a mistake as to the existence of the thing sold, so as to bring this case within any rule to entitle the defendant to throw up the contract. (1 Story’s Eq. Jur. §§ 142-151.) It is settled, upon a sale of property without fraud, which turns out to be defective, that the remedy of the defendant (if he have any remedy at all) is by recoupment, or by an action upon the warranty, if there be one. (Gillespie v. Torrance, 4 Bosw. 36 , 45. Gihon v. Levy, 2 Duer, 176 , 182.) 2. It was in proof, and not contradicted, that the process secured by the patents was valuable, the company regularly incorporated, and its stock in such request that very considerable sales had already been made. Two are proved, of 500 shares each, at fifty per cent, and one of 200 shares, at forty per cent. No doubt the company had a grant from the city of a right to lay the pipes, but let it be conceded that this grant required confirmation from the legislature. Under these circumstances, it is impossible to say that the thing sold had no existence, and that, therefore, the whole consideration failed, and that the plaintiff must be nonsuited. 3. It should be observed, that the plaintiff was nonsuited upon the idea that the whole consideration failed; as if, upon a sale of a horse, the horse were dead when the sale was made. The plaintiff was not nonsuited upon any idea that a material part of the consideration failed, which might give the defendant a right to rescind upon a tender back of the stock. No such proof was offered, but the plaintiff was nonsuited on her own evidence, in which no tender of the stock was suggested. 4. The fact that the
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subscription contemplated when the sale was made, did not afterwards succeed, and that the company was after-wards merged in the Citizens’ Mutual Gras Company, could have no effect to warrant the nonsuit.
VI. - The plaintiff said to the defendant, in substance, that she had a grant from the city to lay pipes, and she had such grant. The effect of that grant, and whether it required confirmation to make it perfect, was a question of law, and not of fact at all. This was a matter within the'equal knowledge of both parties, and such an error cannot give the defendant any right to rescind, nor, indeed, any right whatever against the plaintiff. (Horner v. Wood, 15 Barb. 371 -374.)
VII. The judgment entered upon the nonsuit should be reversed, and a new trial ordered. The plaintiff also asks that the order of reference be vacated.
Stanley, Langdell & Brown, for the respondent.

This action is brought to recover for stock sold by the plaintiff to the defendant. Ten per cent of the price' was paid and the stock delivered.

The answer contains a general denial, except as to some matters subsequently admitted; denies that the plaintiff is the party in interest; and alleges that the stock was sold to the defendant by the husband of the plaintiff, who represented that the company named had been incorporated, and owned the right to manufacture gas in the city of Hew Tork; that they had a new invention for manufacturing gas, and had a patent therefor; that the company had obtained a grant which gave it the right to lay pipes in the streets of Hew York; and that such gas was in use in different parts of the country. The answer further alleged that such representations were false, and claimed to recoup the ten per cent paid on the purchase.

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On the conclusion of the plaintiff’s testimony the referee dismissed the complaint and gave judgment for the defendant.

Whether or not the charter obtained for the company authorized the corporation to sell gas, and whether or not the resolution passed by the common council authorized the company to lay pipes in the streets of New York to distribute the gas, were not questions of fact on which fraud in malting the contract for the sale of the stock could be predicated.

There was an incorporation of a company under the manufacturing act, as stated in the certificate of stock delivered at the time of the sale, and there was a resolution passed by the common council giving to the company the right to lay pipes and mains in the streets of New York. So far as there was a representation of fact it was true. Whether, under such incorporation, the company could sell gas, and whether such resolution of the common council was valid to confer the powers which it professed to have, were questions of law, and an opinion stated on either of these points would be nothing but an opinion on a question of law, the formation of which was just as much within the power of the purchaser as of the seller; and an error on the part of the vendor in stating such an opinion would not be a false statement of a fact, on which the purchaser could rely to vacate the contract.

It was represented, at the time, that one million dollars of the capital stock had been paid up, and the defendant claimed that this was false. The referee finds that one million of stock was issued in payment of the patent rights and the city grants. This was authorized by the act under which the company was incorporated, and that representation was not, therefore, false. The representation that the remainder of the capital stock, $2,000,000, was to be subscribed, and that they had full confidence that such subscriptions would be obtained,

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was not the statement of any fact then existing, bnt a mere opinion of what would be, and if erroneous, formed no defence.

The subsequent failure of the company to carry out their project, the failure to erect gas-works, and the abandonment of the project by the directors, in no way affected the contract previously made between the parties. That risk was assumed by the purchaser when he made his investment in the stock. The vendor in no way guaranteed the final success of the undertaking.

The referee appears to have based his decision on a supposed failure of consideration arising from a mutual 'mistake of fact on the part of buyer and seller in regard to the validity of the resolution passed by the common council. He says, in his findings: “Both believed such right of great value, when in reality the company had no such right•” and he found that such fact was material to the contract made, “and that the defendant would not have made such contract but for such mistake.”

I have already suggested that the mistake, if it existed, was a mistake of law, and not of fact. The defendant was as much bound to inquire as to the validity of the grant, as the plaintiff, and a mistake by either would not affect the contract. In Shotwell v. Murray, (1 John. Ch. 512,) it is said: “A person cannot avoid the operation of an agreement entered into with knowledge of the facts, on the ground of ignorance of the legal consequences which flow from these facts. " In Lyon v. Richmond, ( 2 John. Ch. 51,) it is saidcourts do not undertake to relieve parties from their acts and deeds fairly done on a full knowledge of the facts, though under a mistake of the law. In Clarke v. Dutcher, (9 Cowen, 674,) it was held that money paid under a mistake of law, with knowledge of the facts, could not be recovered back. In Champlin v. Laytin, ( 18 Wend. 407 ,) the question is fully discussed, and it is stated as well

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settled that a mistake as to the law furnished no ground of relief.

[First Department, General Term, at New York,

November 4, 1872.

Ingraham. and Leonard, Justices.]

■ The learned referee, before whom this case was tried, refers to Martin v. McCormick, ( 8 N. Y. 331 ,) as disposing of the objection that the mistake was one of law. That case was entirely different. The mistake in that case was in supposing a lease under an assessment sale was valid, when the property had been redeemed by payment of the amount to the comptroller. The mistake was in supposing that it was not redeemed, and that his estate still existed. Although, I think, this case comes very near to the dividing line between mistakes of law and mistakes of fact, the difference I have suggested will warrant the calling it a mistake of fact.

The judgment should be reversed and a new trial ordered, costs to abide the event.

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